UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



            X    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
         -------
                 THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2004

                     TRANSITION REPORT PURSUANT TO SECTION 13 OR
         ---------
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

           Delaware                                        36-3858106
(State or other jurisdiction of                (IRS Employer Identification No.)
  incorporation or organization)

3250 Lacey Road, Ste. 600, Downers Grove, Illinois               60515-1700
(Address of principal executive offices)                         (Zip Code)

                                  630-663-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No    .
                                      ---  ---

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes X No   .
                                        ---  ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 290,467,000 shares of common stock on May 3, 2004.





<PAGE>










                                  TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations for the three
   months ended March 31, 2004 and March 31, 2003                              3

Condensed Consolidated Statements of Financial Position
   as of March 31, 2004 and December 31, 2003                                  4

Condensed Consolidated Statements of Cash Flows for the three months
   ended March 31, 2004 and March 31, 2003                                     5

Notes to Condensed Consolidated Financial Statements                           6

Item 2: Management Discussion and Analysis of Financial
    Condition and Results of Operations                                       12

Item 3:  Quantitative and Qualitative Disclosures About
    Market Risk                                                               19

Item 4: Controls and Procedures                                               20


PART II.  OTHER INFORMATION

Item 2:  Changes in Securities, Use of Proceeds and Issuer
   Purchases of Equity Securities                                             21

Item 6:  Exhibits and Reports on Form 8-K                                     21

Signature                                                                     23









<PAGE>









                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>


                                                                                             Three Months Ended
                                                                                                  March 31,

                                                                                        2004                   2003
                                                                                    ----------              ----------
<S>                                                                                  <C>                     <C>
OPERATING REVENUE ........................................................           $ 756,891               $ 712,343

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ..............................             545,056                 516,354
Selling and administrative expenses ......................................             179,310                 169,208

Amortization expense .....................................................               1,422                   1,640

Total operating costs and expenses .......................................             725,788                 687,202
                                                                                     ---------               ---------

OPERATING INCOME .........................................................              31,103                  25,141

NON-OPERATING EXPENSE (INCOME):
Interest expense .........................................................              14,931                  16,283
Interest and investment income ...........................................              (4,570)                 (1,219)
Minority interest and other expense, net .................................               2,046                   2,072
                                                                                     ---------               ---------

INCOME FROM CONTINUING OPERATIONS BEFORE
       INCOME TAXES ......................................................              18,696                   8,005
Provision for income taxes................................................               7,235                   3,162
                                                                                     ---------               ---------

INCOME FROM CONTINUING OPERATIONS ........................................              11,461                   4,843

Loss from discontinued operations, net of income taxes ...................                (262)                   (168)
                                                                                     ---------               ---------
NET INCOME ...............................................................           $  11,199               $   4,675
                                                                                     =========               =========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations ........................................           $    0.04               $    0.02

Discontinued operations, net .............................................                   -                       -
                                                                                     ---------               ---------
Basic earnings per share .................................................           $    0.04               $    0.02
                                                                                     =========               =========
SHARES ...................................................................             291,799                 297,801


DILUTED EARNINGS PER SHARE:
Income from continuing operations ........................................           $    0.04               $    0.02

Discontinued operations, net .............................................                   -                       -
                                                                                     ---------               ---------
Diluted earnings per share ...............................................           $    0.04               $    0.02
                                                                                     =========               =========
SHARES ...................................................................             296,035                 301,635



</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>



                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>

                                                                                                    As of March 31,   As of Dec. 31,
ASSETS                                                                                                   2004               2003
                                                                                                     -----------        -----------
CURRENT ASSETS:

<S>                                                                                                  <C>                <C>
Cash and cash equivalents ....................................................................       $   146,572        $   228,161
Marketable securities ........................................................................            89,167             90,540
Receivables, less allowance of $26,406 and $26,220, respectively .............................           336,008            333,834
Inventories ..................................................................................            72,563             70,163
Prepaid expenses and other assets ............................................................            77,343             33,408
Deferred customer acquisition costs ..........................................................            68,776             41,806
Deferred taxes and income taxes receivable ...................................................            87,556             87,589
Assets of discontinued operations ............................................................             4,948              5,273
                                                                                                     -----------        -----------
       Total Current Assets ..................................................................           882,933            890,774
                                                                                                     -----------        -----------
PROPERTY AND EQUIPMENT:
   At cost ...................................................................................           399,719            387,569
   Less: accumulated depreciation ............................................................          (215,101)          (208,054)
                                                                                                     -----------        -----------
     Net property and equipment ..............................................................           184,618            179,515
                                                                                                     -----------        -----------

OTHER  ASSETS:
Goodwill .....................................................................................         1,523,818          1,516,206
Intangible assets, primarily trade names .....................................................           215,787            216,453
Notes receivable .............................................................................            45,425             46,441
Long-term marketable securities ..............................................................            93,118             92,562
Other assets .................................................................................            14,198             14,475
                                                                                                     -----------        -----------
       Total Assets ..........................................................................       $ 2,959,897        $ 2,956,426
                                                                                                     ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable .............................................................................       $    94,417        $    86,963
Accrued liabilities:
   Payroll and related expenses ..............................................................            83,543             89,427
   Self-insured claims and related expenses ..................................................            70,706             73,320
   Other .....................................................................................           105,944            100,454
Deferred revenues ............................................................................           461,871            419,915
Liabilities of discontinued operations .......................................................            12,955             14,380
Current portion of long-term debt ............................................................            30,245             33,781
                                                                                                     -----------        -----------
       Total Current Liabilities .............................................................           859,681            818,240
                                                                                                     -----------        -----------

LONG-TERM DEBT ...............................................................................           792,837            785,490

LONG-TERM LIABILITIES:
     Deferred taxes ..........................................................................           279,545            276,000
     Liabilities of discontinued operations ..................................................            33,977             34,396
     Other long-term obligations .............................................................           131,374            125,474
                                                                                                     -----------        -----------
        Total Long-Term Liabilities ..........................................................           444,896            435,870
                                                                                                     -----------        -----------

MINORITY INTEREST ............................................................................           100,309            100,309

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
     317,451 and 317,315 shares, respectively ................................................             3,175              3,173
Additional paid-in capital ...................................................................         1,062,695          1,061,640
Retained earnings (accumulated deficit) ......................................................           (13,228)             6,365
Accumulated other comprehensive income .......................................................             7,627              7,932
Restricted stock .............................................................................            (9,786)            (4,368)
Treasury stock ...............................................................................          (288,309)          (258,225)
                                                                                                     -----------        -----------
       Total Shareholders' Equity ............................................................           762,174            816,517
                                                                                                     -----------        -----------
       Total Liabilities and Shareholders' Equity ............................................       $ 2,959,897        $ 2,956,426
                                                                                                     ===========        ===========

</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       4
<PAGE>





                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>



                                                                                         Three Months Ended
                                                                                               March 31,
                                                                                     2004                   2003
                                                                                  ---------              ----------

<S>                                                                                <C>                    <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ......................................      $228,161               $227,177


CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ..................................................................        11,199                  4,675
     Adjustments to reconcile net income to net cash flows from operating
activities:
        Loss from discontinued operations ...................................           262                    168
        Depreciation expense ................................................        12,175                 12,397
        Amortization expense ................................................         1,422                  1,640
        Deferred income tax expense .........................................         5,815                  2,448

         Change in working capital, net of acquisitions:
            Receivables .....................................................        (5,822)               (15,264)
            Inventories and other current assets ............................       (62,308)               (65,828)
            Accounts payable ................................................         7,490                 (7,133)
            Deferred revenues ...............................................        41,443                 42,867
            Accrued liabilities .............................................         3,027                (12,795)
            Other, net ......................................................         1,514                  3,782
                                                                                  ---------              ---------
NET CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES ......................        16,217                (33,043)
                                                                                  ---------              ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ....................................................       (12,520)               (10,527)
      Sale of equipment and other assets ....................................           488                    933
      Business acquisitions, net of cash acquired ...........................        (4,197)               (13,070)
      Notes receivable, financial investments and securities ................         3,696                (14,016)
                                                                                  ---------              ---------
NET CASH USED FOR INVESTING ACTIVITIES ......................................       (12,533)               (36,680)
                                                                                  ---------              ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ..................................................        (9,962)               (10,549)
      Purchase of ServiceMaster stock .......................................       (39,831)                (1,901)
      Shareholders' dividends ...............................................       (30,792)               (31,359)
      Other, net ............................................................        (2,646)                 2,273
                                                                                  ---------              ---------
NET CASH USED FOR FINANCING ACTIVITIES ......................................       (83,231)               (41,536)
                                                                                  ---------              ---------
CASH USED FOR DISCONTINUED OPERATIONS .......................................        (2,042)               (11,651)
                                                                                  ---------              ---------

CASH DECREASE DURING THE PERIOD .............................................       (81,589)              (122,910)
                                                                                  ---------              ---------

CASH AND CASH EQUIVALENTS AT MARCH 31 .......................................     $ 146,572              $ 104,267
                                                                                  =========              =========




</TABLE>








            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




                                       5
<PAGE>




                            THE SERVICEMASTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1: The condensed  consolidated financial statements include the accounts of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2: The condensed  consolidated  financial  statements have been prepared by
the Company in accordance with accounting  principles  generally accepted in the
United States (GAAP) and pursuant to the rules and regulations of the Securities
and Exchange  Commission.  The Company  suggests  that the  quarterly  condensed
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and the notes thereto  included in the  Company's  latest
Annual  Report to  Shareholders  and the  Annual  Report to the  Securities  and
Exchange  Commission  on Form 10-K for the year ended  December  31,  2003 (2003
Annual Report).  The condensed  consolidated  financial  statements  reflect all
adjustments,  which are, in the opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  and  results of  operations.  These  relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation and air  conditioning  (HVAC),  and electrical are recognized on the
percentage of completion  method in the ratio that total  incurred costs bear to
total  estimated  costs.  The  Company  eradicates  termites  through the use of
baiting stations,  as well as through non-baiting  methods (e.g.,  fumigation or
liquid  treatment).  Termite  services  using  baiting  stations as well as home
warranty  services  typically are sold through annual  contracts for a one-time,
upfront  payment.  Direct costs of these  contracts  (service  costs for termite
contracts and claim costs for warranty contracts) are expensed as incurred.  The
Company recognizes revenue over the life of these contracts in proportion to the
expected  direct  costs.  Revenue  from trade  name  licensing  arrangements  is
recognized when earned.  Franchised  revenues (which in the aggregate  represent
approximately  three percent of  consolidated  revenue)  consist  principally of
monthly fee revenue, which is recognized when the related customer level revenue
is reported by the franchisee and  collectibility is assured.  Franchise revenue
also includes  initial fees resulting  from the sale of a franchise.  These fees
are fixed and are recognized as revenue when  collectibility  is assured and all
material  services or  conditions  relating to the sale have been  substantially
performed.  Due to the  seasonality  of the TruGreen  and  Terminix  operations,
franchise  fee  income  represented  30 percent  and 35 percent of  consolidated
operating   income  for  the  three  months  ended  March  31,  2004  and  2003,
respectively.  The portion of total franchise fee income related to initial fees
received  from  the  sale  of a  franchise  were  immaterial  to  the  Company's
consolidated financial statements for all periods.

The Company had $462 million and $420  million of deferred  revenue at March 31,
2004 and 2003,  respectively,  which consist  primarily of payments received for
annual  contracts  relating  to home  warranty,  termite  baiting  and lawn care
services.  The revenue  related to these  services is recognized as the services
are performed over the contractual period.

Customer  acquisition costs, which are incremental and direct costs of obtaining
a customer,  are deferred and amortized over the life of the related contract in
proportion to revenue  recognized.  These costs include  sales  commissions  and
direct selling costs which can be shown to have resulted in a successful sale.

TruGreen ChemLawn has significant seasonality to its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are rendered  primarily in March through  October.  The Company incurs and
defers  incremental  selling expenses at the beginning of the year that directly
relate to  successful  sales for which the revenues  will be recognized in later
quarters. This business also defers, on an interim basis, pre-season advertising
costs  and the costs of  annual  repairs  and  maintenance  procedures  that are
performed  in the  first  quarter.  These  costs  are  deferred  and  recognized


                                       6
<PAGE>


approximately in proportion to the contract revenue over the production  season,
and are not deferred beyond the calendar year-end.

As noted  above,  TruGreen's  pre-season  advertising  costs  are  deferred  and
recognized  approximately  in  proportion  to  the  contract  revenue  over  the
production  season.  Terminix and ARS also defer  advertising costs in the first
quarter and recognizes the expense over the year  approximately in proportion to
their revenue.  These costs are not deferred beyond the calendar  year-end.  The
cost of  direct-response  advertising at Terminix is  capitalized  and amortized
over its expected period of future benefits.  This  direct-response  advertising
consists primarily of direct-mail promotions,  for which the cost is capitalized
and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2003  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgments.  The areas discussed included the allowance
for receivables,  accruals for self-insured retention limits related to medical,
workers  compensation,  auto and general liability insurance,  accruals for home
warranty claims,  the possible outcome of outstanding  litigation,  accruals for
income tax  liabilities  as well as  deferred  tax  accounts,  useful  lives for
depreciation  and  amortization  expense,  and the  valuation  of  tangible  and
intangible  assets. In 2004, there have been no changes in the significant areas
that require estimates or in the methodologies which underlie these estimates.

NOTE 4: The Company  carries  insurance  policies on  insurable  risks at levels
which it believes to be appropriate,  including workers' compensation,  auto and
general  liability  risks.  The Company has  self-insured  retention  limits and
insured layers of excess  insurance  coverage  above those limits.  Accruals for
self-insurance  losses and warranty  claims in the American Home Shield business
are made based on the Company's  claims  experience  and actuarial  projections.
Current  activity  could differ  causing a change in estimates.  The Company has
certain liabilities with respect to existing or potential claims,  lawsuits, and
other proceedings. The Company accrues for these liabilities when it is probable
that future costs will be incurred and such costs can be reasonably estimated.

The Company records deferred income tax balances based on the net tax effects of
temporary  differences  between the carrying value of assets and liabilities for
financial  reporting  purposes and income tax  purposes.  There are  significant
amortizable  intangible  assets for tax  reporting  purposes  (not for financial
reporting  purposes)  which arose as a result of the  Company's  reincorporation
from partnership to corporate form in 1997. The Company records its deferred tax
items based on the estimated  ultimate value of the tax basis. The Company's tax
estimates are adjusted when required to reflect changes based on factors such as
changes in tax laws, results of tax authority reviews and statutory limitations.

In the event that actual  results  differ from the  estimates  discussed in this
note, the Company would reflect those changes,  which could be material,  in the
period that the difference is identified.

NOTE 5: In accordance with Statement of Financial  Accounting  Standards  (SFAS)
142,  goodwill  and  intangible  assets  that are not  amortized  are subject to
assessment for impairment by applying a fair-value based test on an annual basis
or more  frequently  if  circumstances  indicate a  potential  impairment.  Such
circumstances   could  include  actual   earnings  being   significantly   below
management's estimates. The Company's annual assessment date is October 1.

The following table summarizes the goodwill and intangible asset activity and
balances:

<TABLE>

(In thousands)                    As of                                       As of
                                Dec. 31,                                    March 31,
                                  2003        Additions        Amort.         2004
                              -----------    -----------   ------------   -----------
<S>                           <C>            <C>           <C>            <C>
Goodwill(1) ...............   $ 1,516,206    $     7,612   $      --      $ 1,523,818
Trade names(1) ............       204,793           --            --          204,793

Other intangible assets ...        35,432            756          --           36,188
Accumulated amortization(2)       (23,772)          --          (1,422)       (25,194)
                              -----------    -----------   -----------    -----------
Net other intangibles .....        11,660            756        (1,422)        10,994
                              -----------    -----------   -----------    -----------
Total .....................   $ 1,732,659    $     8,368   $    (1,422)   $ 1,739,605
                              ===========    ===========   ============   ===========
</TABLE>


(1)  Not subject to amortization.

(2)  Annual amortization expense of approximately $6 million in 2004 is expected
     to decline over the next five years.


                                       7
<PAGE>


The table  below  presents,  by  segment,  the  goodwill  that is not subject to
amortization:

      (In thousands)                  March 31,          Dec. 31,
                                        2004               2003
                                     -------------     --------------
      TruGreen                          $659,034           $652,534
      Terminix                           623,279            622,351
      American Home Shield                72,085             72,085
      ARS/AMS                             56,171             56,171
      Other Operations                   113,249            113,065
                                     -------------     --------------
      Total                           $1,523,818         $1,516,206
                                     =============     ==============


NOTE 6: Basic  earnings  per share is computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been considered  outstanding for purposes of
the diluted earnings per share  calculations.  In computing diluted earnings per
share, the after-tax interest expense related to convertible debentures is added
back to net income in the numerator, while the diluted shares in the denominator
include  the  shares  issuable  upon   conversion  of  the  debentures.   Shares
potentially  issuable  under  convertible  securities  have not been  considered
outstanding for the three months ended March 31, 2004 and 2003, respectively, as
their  inclusion  results in a less dilutive  computation.  Had the inclusion of
convertible securities not resulted in a less dilutive computation for the three
months ended March 31, 2004 and 2003,  incremental  shares  attributable  to the
assumed  conversion of the debentures would have increased shares outstanding by
8.0  million  shares and 8.2 million  shares,  respectively,  and the  after-tax
interest  expense  related to the  convertible  debentures  that would have been
added to net  income in the  numerator  would  have been $1.2  million  for both
periods.

The following  table  reconciles  both the numerator and the  denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation.

<TABLE>

(In thousands, except per share data)                 Three Months                          Three Months
                                                 Ended March 31, 2004                  Ended March 31, 2003
                                            --------------------------------       ------------------------------

CONTINUING OPERATIONS:                        Income       Shares      EPS           Income      Shares     EPS
----------------------                      ----------   ---------  --------       ----------  ---------  -------
<S>                                           <C>         <C>         <C>           <C>         <C>        <C>
 Basic earnings per share                     $11,461     291,799     $0.04         $4,843      297,801    $0.02
                                                                      =====                                =====
 Effect of dilutive securities, net of tax:
  Options                                                   4,236                                 3,834
                                              -------     -------                   ------      -------


 Diluted earnings per share                   $11,461     296,035    $0.04          $4,843      301,635    $0.02
                                              =======   =========    =====          ======      =======    =====

</TABLE>

NOTE 7: The Company is accounting  for employee  stock  options as  compensation
expense in accordance with SFAS 123, "Accounting for Stock-Based  Compensation."
SFAS 148 "Accounting  for Stock-Based  Compensation - Transition and Disclosure,
an  amendment  of FASB  Statement  No.  123",  provides  alternative  methods of
transitioning  to the  fair-value  based method of accounting for employee stock
options as compensation  expense.  The Company is using the "prospective method"
of SFAS 148 and is  expensing  the  fair-value  of new  employee  option  grants
awarded subsequent to 2002.

Prior to 2003,  the Company  accounted  for  employee  share  options  under the
intrinsic  method of  Accounting  Principles  Board Opinion No. 25, as permitted
under GAAP. Had compensation  expense for employee options been determined under
the fair-value based method of SFAS 123 for all periods,  proforma  reported net
income and net earnings per share would reflect the following:


                                       8
<PAGE>



                                                     Three Months Ended
                                                          March 31,
(In thousands, except per share data)              2004               2003
                                              ---------------    ---------------

Net income as reported                               $11,199             $4,675

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                             249                164

Deduct:  Stock-based compensation
  expense    determined   under   fair-value
method,
  net of related tax effects                         (1,424)            (1,877)
                                              ---------------    ---------------
Proforma net income                                  $10,024             $2,962
                                              ===============    ===============


Basic Earnings Per Share:
  As reported                                          $0.04              $0.02

  Proforma                                             $0.03              $0.01

Diluted Earnings Per Share:
  As reported                                          $0.04              $0.02

  Proforma                                             $0.03              $0.01

In March  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued an
Exposure Draft,  "Share-Based  Payment,  an Amendment of FASB Statements No. 123
and 95". In its current  form,  this Exposure  Draft would require  companies to
record stock options and share grants at fair value and recognize  this value as
compensation expense over their vesting period. The Exposure Draft would require
companies to record compensation  expense for newly issued awards as well as the
unvested portion of previously  issued awards that remain  outstanding as of the
date  of  the  adoption  of  the  Exposure  Draft.  ServiceMaster  has  recorded
compensation  expense  relating to the vesting of awards  granted  subsequent to
2002. If adopted in its current form,  the Exposure Draft would be effective for
fiscal years  beginning  after  December 15,  2004.  ServiceMaster  is currently
assessing the potential impact of this Exposure Draft.

NOTE  8:  In  January  2003,  the  FASB  issued  FASB   Interpretation  No.  46,
"Consolidation   of   Variable   Interest   Entities"   (FIN  46).   Under  this
Interpretation,  certain  entities known as "variable  interest  entities" (VIE)
must be  consolidated by the "primary  beneficiary"  of the entity.  The primary
beneficiary is generally defined as having the majority of the risks and rewards
arising from the VIE. In December 2003, the FASB issued FASB  Interpretation No.
46,  Revised  (FIN 46R),  which  revised the  originally  issued  document.  The
requirements  of FIN 46 and FIN 46R have been  adopted by the  Company and their
adoption did not have a material impact on the Company's  Consolidated Financial
Statements.

NOTE 9: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating to the  Condensed  Consolidated  Statements of Cash Flows for the three
months ended March 31, 2004 and 2003 is presented in the following table:

                                                 (IN THOUSANDS)
                                                2004        2003
CASH PAID OR (RECEIVED) FOR:                 ---------   ---------
Interest expense...........................  $ 22,509    $ 23,491
Interest and dividend income...............  $ (1,988)   $ (2,036)
Income taxes...............................  $  2,552    $    618

Cash paid for income  taxes  increased  in 2004 as a result of a higher level of
tax refunds received in the prior year.

NOTE 10: Total comprehensive income was $11 million and $3 million for the three
months ended March 31, 2004 and 2003,  respectively.  Total comprehensive income
includes  primarily  net  income,  changes  in  unrealized  gains and  losses on
marketable securities and foreign currency translation balances.

NOTE 11: The Company has an agreement  which provides for the ongoing  revolving
sale of a designated  pool of accounts  receivable of TruGreen and Terminix to a
wholly  owned,   bankruptcy-remote   subsidiary,


                                       9
<PAGE>



ServiceMaster  Funding  LLC.  ServiceMaster  Funding  LLC  has  entered  into an
agreement to transfer,  on a revolving basis, an undivided  percentage ownership
interest in a pool of accounts  receivable to unrelated third party  purchasers.
ServiceMaster  Funding LLC retains an undivided  percentage interest in the pool
of accounts  receivable  and bad debt  losses for the entire pool are  allocated
first to this  retained  interest.  At March 31,  2004 and 2003,  there  were no
receivables sold to third parties under this agreement. However, the Company may
sell its  receivables in the future,  which would provide an additional  funding
source.  The agreement is a 364-day  facility that is renewable at the option of
the  purchasers.  The Company may sell up to $65 million of its  receivables  to
these  purchasers  in the  future and  therefore  has  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year based on seasonality of the business and will at times limit the amount
available to the Company.

NOTE 12: During the third quarter of 2003, the Company sold substantially all of
the assets and related operational  obligations of Trees, Inc., the utility line
clearing  operations  of TruGreen  LandCare.  The  results of the  utility  line
clearing  operations of Trees,  Inc.  have been  reclassified  as  "Discontinued
Operations" and are not included in continuing operations.

In October 2001, the Company's Board of Directors approved a series of strategic
actions, which were the culmination of an extensive portfolio review process. As
part of this portfolio review, the Company sold or exited certain  non-strategic
or  under-performing  businesses in the fourth quarter of 2001 and third quarter
of 2002. The results of these  discontinued  business units have been separately
classified  as   "Discontinued   Operations"  in  the   accompanying   financial
statements.


In the  fourth  quarter  of  2001,  the  Company  recorded  a charge  for  asset
impairments  and  other  items  which  included   accruals  for  residual  value
guarantees on leased properties,  severance for former executives and terminated
employees,  and other costs. At the end of 2003,  there were  approximately  $10
million  of  reserves  remaining,  primarily  relating  to long  term  severance
agreements that extend over several years.

The table below  summarizes the activity during the three months ended March 31,
2004 for the remaining liabilities from the discontinued operations. The Company
believes that the remaining reserves continue to be adequate and reasonable.

 (IN THOUSANDS)                   Balance at         Cash          Balance at
                                 December 31,      Payments         Mar. 31,
                                     2003          or Other           2004
                                 ------------    -----------      -----------
 Remaining liabilities from
   discontinued operations
      LandCare Construction       $7,152           $746             $6,406
      LandCare utility line
         clearing business         9,011            625              8,386
      Certified Systems, Inc.     11,024            403             10,621
      Management Services            283             21                262
      International businesses    12,017             49             11,968
      Other                        9,289              -              9,289

NOTE 13: In the  ordinary  course,  the Company is subject to review by domestic
and foreign taxing authorities,  including the Internal Revenue Service ("IRS").
From  1986  through  1997 most  operations  of the  Company  were  conducted  in
partnership form, free of federal corporate income tax. During that period,  the
Company  was not  reviewed  by the IRS.  In 1997,  the  Company  converted  from
partnership to corporate  form. In 2003, the IRS commenced an examination of the
Company's  consolidated  income tax returns for 2002, 2001 and 2000. The Company
expects  the  IRS'  examination  to be in its  final  stages  in late  2004 and
completed in early 2005.  As with any review of this nature,  the outcome of the
IRS examination is not known at this time.

NOTE 14:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  In accordance with SFAS 131, the Company's  reportable segments are
strategic  business units that offer different  services.  The TruGreen  segment
provides  residential and commercial lawn care and landscaping  services through
the TruGreen  ChemLawn and TruGreen  LandCare  companies.  The Terminix  segment
provides  termite  and pest  control  services  to  residential  and  commercial
customers.  The  American  Home  Shield  segment  provides  home  warranties  to
consumers that cover HVAC, plumbing and other home systems and appliances.  This
segment also  includes  home  inspection  services  provided by  AmeriSpec.  The
ARS/AMS  segment



                                       10
<PAGE>


provides HVAC and plumbing  installation and repair services  provided under the
ARS Service Express, American Mechanical Services and Rescue Rooter brand names.
The Other Operations segment includes the franchise and company-owned operations
of ServiceMaster Clean,  Furniture Medic and Merry Maids, which provide disaster
restoration,  cleaning,  furniture  repair and maid  services.  The segment also
includes  the  Company's   headquarters   operations,   which  provide   various
technology, marketing, finance and other support services to the business units.
Segment information is presented below.

(IN THOUSANDS)                            Three Months        Three Months
                                         Ended Mar. 31,      Ended Mar. 31,
                                              2004                2003
----------------------------------------------------------------------------
Operating Revenue:
  TruGreen                                  $224,659            $204,547
  Terminix                                   236,796             225,906
  American Home Shield                       102,797              94,224
  ARS/AMS                                    153,984             151,433
  Other Operations                            38,655              36,233
----------------------------------------------------------------------------
Total Operating Revenue                     $756,891            $712,343
============================================================================

Operating Income:
  TruGreen                                  $(2,898)            $(8,550)
  Terminix                                    36,254              33,528
  American Home Shield                        10,116               8,159
  ARS/AMS                                    (3,648)             (1,170)
  Other Operations                           (8,721)             (6,826)
----------------------------------------------------------------------------
Total Operating Income                       $31,103             $25,141
============================================================================

<TABLE>

(IN THOUSANDS)                                                As of                    As of
                                                         March 31, 2004            Dec. 31, 2003
-----------------------------------------------------------------------------------------------------
Identifiable Assets:
<S>                                                       <C>                          <C>
  TruGreen                                                $1,037,548                   $911,958
  Terminix                                                   822,003                    822,407
  American Home Shield                                       415,878                    422,765
  ARS/AMS                                                    184,663                    185,528
  Other Operations (and discontinued businesses)             499,805                    613,768
-----------------------------------------------------------------------------------------------------
Total Identifiable Assets                                 $2,959,897                 $2,956,426
=====================================================================================================

</TABLE>
<TABLE>


(IN THOUSANDS)                                              As of                    As of
                                                        March 31, 2004           March 31, 2003
-----------------------------------------------------------------------------------------------------
Capital Employed: (1)
<S>                                                         <C>                      <C>
  TruGreen                                                  $850,163                 $1,000,406
  Terminix                                                   598,445                    602,068
  American Home Shield                                       135,435                    101,725
  ARS/AMS                                                     94,805                    394,483
  Other Operations (and discontinued businesses)               6,717                     27,608
-----------------------------------------------------------------------------------------------------
Total Capital Employed                                    $1,685,565                 $2,126,290
=====================================================================================================
</TABLE>


(1)  Capital  employed  is a  non-U.S.  GAAP  measure  that  is  defined  as the
     segment's total assets less  liabilities,  exclusive of debt balances.  The
     Company  believes this  information  is useful to investors in helping them
     compute  return on capital  measures and therefore  better  understand  the
     performance of the Company's business segments.



                                       11
<PAGE>


      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003

CONSOLIDATED OVERVIEW

ServiceMaster  (the  "Company")  reported  revenue of $757  million in the first
quarter of 2004,  six percent  above 2003 with  substantially  all of the growth
from internal sources.  First quarter 2004 diluted earnings per share doubled to
$.04 from $.02 in 2003.  Operating  income for the first  quarter  increased  24
percent to $31 million  compared to $25  million in 2003.  All of the  Company's
businesses experienced increases in revenue and many had meaningful improvements
in growth rate trends.  Most units also reported solid increases in profits.  As
discussed  below,  the  Company's   results   benefited  from  a  few  favorable
comparisons,  however,  these were virtually  offset by  unfavorable  factors of
nearly equal value.  On the positive side, the lawn care  operations of TruGreen
ChemLawn benefited from more normal weather conditions than last year, when late
season snow adversely impacted  production.  This business was able to return to
more typical  production  schedules,  thereby  offsetting the effects of reduced
snow  removal  revenue in the TruGreen  LandCare  operations.  In addition,  the
Company realized  approximately $3 million more in investment gains this year on
its equity  investment  portfolio at American  Home  Shield.  The level of gains
realized was reasonable given the  substantially  improved market conditions and
size of the  investment  portfolio.  On the other hand,  results were  adversely
impacted  by  some   unfavorable   factors.   More  normal  levels  of  variable
compensation  throughout the enterprise increased costs by almost $7 million and
branch  consolidations  at TruGreen  LandCare  resulted in increased  charges of
approximately $1.2 million. Finally, the cost controls and the focus on improved
efficiencies that were evident  throughout the enterprise during the second half
of last year  remained  firmly in place,  helping  the  Company to offset  large
increases in certain key costs such as insurance and fuel.

The  Company has  re-affirmed  its  outlook  for the year.  The Company  expects
revenue  growth to be in the  mid-single  digit range in 2004 with  earnings per
share growing  somewhat  faster.  Earnings per share growth is typically  faster
than revenue  growth due to the  Company's  ability to leverage its cost base on
the incremental  volume.  The Company  believes that positive factors such as an
improving economy, higher consumer confidence and increased home sales will help
it overcome higher insurance,  fuel costs and a return to a more normal level of
incentive  compensation.  The Company  continues  to remain  focused on top-line
sales growth,  increased customer  retention and price  realization,  as well as
improving performance in the ARS/AMS segment and at TruGreen LandCare.

Cost of  services  rendered  and  products  sold  increased  six percent for the
quarter and  decreased as a  percentage  of revenue to 72.0 percent in 2004 from
72.5 percent in 2003. This decrease reflects a change in the mix of the business
as American  Home Shield,  TruGreen  ChemLawn and Terminix  increased in size in
relationship to the overall business of the Company.  These businesses generally
operate at higher gross margin levels than the rest of the  business,  but incur
somewhat higher selling and administrative  expenses as a percentage of revenue.
Selling and administrative  expenses increased six percent for the quarter. As a
percentage of revenue,  these costs decreased to 23.7 percent for the quarter in
2004 from 23.8 percent in 2003 driven by the  substantial  increase in lawn care
revenue in 2004.

Net  non-operating  expense  decreased $5 million from 2003,  reflecting  higher
investment  income from securities gains in the American Home Shield  investment
portfolio,  as well as the favorable  impact from interest rate swap  agreements
entered into at the end of 2003 and early 2004.



                                       12
<PAGE>





KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer  retention  for the three most  profitable  businesses  of the Company.
These measures are presented on a rolling,  twelve-month basis in order to avoid
seasonal anomalies.

<TABLE>


                                                              KEY PERFORMANCE INDICATORS
                                                                      As of March 31,

                                                               2004                   2003
                                                         -----------------      -----------------
         TRUGREEN  CHEMLAWN-
            <S>                                                 <C>                    <C>
            Growth in Full Program Contracts                       2%                     2%
            Customer Retention Rate                             63.6%                  63.5%

         TERMINIX -
            Growth in Pest Control Customers                       4%                     1%
            Pest Control Customer Retention Rate                77.6%                  75.2%

            Growth in Termite Customers                           -2%                     -%
            Termite Customer Retention Rate                     88.2%                  88.6%

         AMERICAN HOME SHIELD -
            Growth in Warranty Contracts                           6%                    12%
            Customer Retention Rate                             54.7%                  55.1% *

         * Restated to conform with the 2004 calculation.

</TABLE>


SEGMENT REVIEW

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand  name.  The  TruGreen  segment  reported  a 10 percent
increase in first  quarter  revenue to $225 million  compared to $205 million in
2003. The segment's  operating loss for the quarter was $3 million compared with
an operating loss of $9 million in 2003.

Revenue in the lawn care operations increased 18 percent over 2003 and operating
income  grew  $11  million  for  the  quarter.   These  strong  results  reflect
accelerated  timing of production due to more favorable weather  conditions,  as
late season snow last year  delayed  the start of lawn care  production  in many
parts of the  country.  Customer  counts  increased  two percent over last year,
which was slightly favorable to the Company's  expectations.  As the Company has
previously  disclosed,  it had expected an adverse first  quarter  impact on the
customer count  comparison as a result of a change in the timing of its customer
acquisition  efforts.  The Company has diversified its sales channels and placed
less  reliance on  telemarketing,  which has  historically  been heaviest in the
first quarter,  while more emphasis has been placed on direct mail, door to door
and other efforts, which are more heavily concentrated in the second quarter. As
a result of the enactment of the National Do Not Call Registry last fall and the
Company's  changes in its sales  channels,  telemarketing  sales  declined by 11
percent.  However,  on a year  to date  basis  through  April,  the  decline  in
telemarketing  sales was offset by a sharp improvement in customer retention and
strong growth in non-telemarketing  sales. The customer retention rates included
in the Key Performance Indicators are presented on a rolling, twelve-month basis
and  reflect  a  modest  10  basis  point  improvement  in  TruGreen  ChemLawn's
retention.  However,  when  measured  more  discretely  for the  first  quarter,
retention has improved more dramatically,  by 160 basis points.  Improvements in
retention  were  pervasive  with nearly  every  region and  division of TruGreen
ChemLawn showing gains.  This reflected the results of steady focus on improving
customer  service  and problem  resolution,  as well as more  strategic  pricing
policies for existing customers.

In April, the Company  announced that TruGreen  ChemLawn  acquired the assets of
Greenspace  Services  Limited  (Greenspace).   Greenspace  is  Canada's  largest
professional lawn care service company.  As this transaction closed in April, it
had no impact on first quarter results.



                                       13
<PAGE>


Revenue in the landscape  maintenance  business was  comparable to 2003.  Modest
growth in base contract  maintenance  combined with stronger  enhancement  sales
volume was offset by last year's  higher snow removal  business.  Good growth in
new  maintenance  contract  sales was offset by lower  customer  retention.  The
Company is  encouraged  by the sharp  increase  in  enhancement  revenue,  which
reflects focused sales efforts and an improving economy. Operating income of the
landscape  maintenance  operations declined by $6 million primarily reflecting a
reduction  in higher  margin snow removal  volume,  higher  insurance,  fuel and
labor-related  costs as well as $1.2  million  of  branch  consolidation  costs.
Management is dedicated to improving performance and has identified key areas of
focus which include  strengthening the sales team and maintenance contract base,
continuing  to  increase  enhancement  revenue,  further  development  of safety
programs, and improving consistency through better process disciplines.

Capital  employed  in the  TruGreen  segment  decreased  15  percent  reflecting
improved  working  capital  management  as well as the impact of the  impairment
charge  recorded in the third  quarter of 2003.  Capital  employed is a non-U.S.
GAAP measure  that is defined as the  segment's  total assets less  liabilities,
exclusive of debt balances.  The Company  believes this information is useful to
investors  in helping  them compute  return on capital  measures  and  therefore
better understand the performance of the Company's business segments.

The Terminix segment, which includes termite and pest control services, reported
a five percent  increase in first  quarter  revenue to $237 million  compared to
$226 million in 2003 and operating income growth of eight percent to $36 million
compared to $34 million in 2003.  After a slow start in the quarter,  the annual
termite swarm activity increased in March and Terminix achieved a solid increase
in  termite  completion  volume.  As  previously  disclosed,  with the  improved
efficacy of liquid termite  treatments,  the Company is providing consumers with
the choice of receiving  termite  services  through  baiting  stations or liquid
treatments.  With this enhanced termite offering, the Company is expecting,  and
has  experienced,  a shift in the mix of its termite  customer base from baiting
stations to liquid treatments.  Because the liquid alternative is less expensive
than the bait  alternative,  the  combined  average  unit price for the  quarter
declined.  When combined with the previously mentioned volume increase,  the net
result was a modest increase in overall revenue dollars for termite completions.
By offering  consumers a choice in treatments  and by  tightening  controls over
price discounting, Terminix has been able to increase the average price realized
for each of the two treatment alternatives, thus partially offsetting the impact
on profits of the mix shift. As previously disclosed,  liquid termite treatments
are generally less profitable  than bait  treatments  during the first year, but
are more profitable in subsequent years, with approximately equal value over the
average  life of a customer.  In the first  quarter,  the  effects of  increased
volume and improved price  realization  virtually offset the impact of the shift
in mix.

In other parts of the business,  Terminix  benefited from  increased  pricing of
termite  renewals  and a solid  improvement  in pest  control  retention  rates.
Overall,  Terminix was able to more than offset  increased  costs in the quarter
associated  with the roll-out of the its new branch  operating  system (which is
now nearly complete) and higher variable compensation  expense,  resulting in an
eight percent overall  improvement in operating income.  Capital employed in the
Terminix segment decreased one percent to $598 million.

The American  Home Shield (AHS)  segment,  which  provides  home  warranties  to
consumers  that cover HVAC,  plumbing  and other home  systems  and  appliances,
reported a nine percent  increase in revenue to $103 million from $94 million in
2003 and operating  income growth of 24 percent,  to $10 million  compared to $8
million  in  2003.  The  revenue   increase   reflected  strong  growth  in  the
direct-to-consumer  channel  resulting  from  continued  expansion  of marketing
efforts with  premier  mortgage  lenders and  financial  institutions.  AHS also
experienced  a solid  increase  in  renewal  revenues,  despite  less  favorable
retention  rates.  Sales in the real  estate  channel  increased  modestly.  The
increase  in  operating  income  was  driven by the growth in revenue as well as
continued effective  management of costs per warranty claim. The Company expects
AHS' core momentum to remain strong,  although  operating income comparisons for
the second  quarter will be adversely  impacted by favorable  claim  adjustments
recorded last year, as well as certain strategic investments, both of which have
been previously considered in the Company's full year earnings outlook.  Capital
employed increased 33 percent reflecting volume growth in the business requiring
a higher level of investment.  The  calculation of capital  employed for the AHS
segment  includes  approximately  $212  million and $165  million of cash,  cash
equivalents and marketable securities at March 31, 2004 and 2003,


                                       14
<PAGE>


respectively.  The interest and  gains/losses on these  investments are reported
below operating income as non-operating income/expense.

The ARS/AMS segment  provides direct HVAC and plumbing  installation  and repair
services under the ARS Service Express,  Rescue Rooter, and American  Mechanical
Services (for large  commercial  accounts)  brand names.  Revenues  increased 2%
overall to $154  million in the  quarter,  which was a 6% growth  excluding  the
effects of discontinued  branches.  The segment reported an operating loss of $4
million  compared  to an  operating  loss of $1 million  in 2003.  The growth in
revenue   reflected   strong  increases  in  residential  new  construction  and
commercial project revenue, offset by declines in HVAC service revenue. Plumbing
revenue  decreased  by less  than  one  percent  for the  quarter.  Within  ARS,
meaningful  progress  has been made on  specific  initiatives  to improve  brand
differentiation  (through such measures as on-time  arrival  guarantee),  expand
sewer line repair  revenue,  and  increase the average  sales  ticket  prices on
replacement HVAC sales.  However,  the impact from these initiatives has not yet
been  enough to offset  the effect of  continued  softness  in the core  service
revenues.  At  AMS,  project  bidding  activity  has  shown  sporadic  signs  of
improvement,  although this has not yet resulted in firmer contract pricing. The
segment's  operating loss for the quarter increased as a result of higher sales,
advertising and insurance  related costs at ARS, as well as lower margins at AMS
due to cyclically  depressed  industry  conditions  in  commercial  real estate.
Capital  employed  decreased 76 percent  reflecting the impact of the impairment
charge recorded in the third quarter of 2003.

The Other  Operations  segment  includes the Company's  ServiceMaster  Clean and
Merry Maids  operations as well as its headquarters  functions.  Revenue in this
segment  increased seven percent to $39 million compared to $36 million in 2003.
The combined  ServiceMaster Clean and Merry Maids franchise  operations reported
revenue  growth  of nine  percent  and a solid  increase  in  operating  income.
ServiceMaster   Clean   continued  to  experience   strong  growth  in  disaster
restoration services,  despite an industry-wide reduction in water damage claims
due to milder weather.  ServiceMaster  Clean's unique service  capabilities  and
geographic  footprint have helped it establish  significant  relationships  with
several  national  insurance  carriers.  At Merry  Maids,  a better  economy and
improved  sales  processes  have driven a steady  increase  in internal  revenue
growth in both the branch and  franchise  operations.  The  segment  reported an
increased operating loss, reflecting higher variable compensation expense at the
headquarters level.  Capital employed in this segment decreased to $7 million at
March 31,  2004  compared  to $28  million  at March  31,  2003  reflecting  the
wind-down of discontinued operations.


FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash  provided by  operating  activities  was a positive  $16 million in the
quarter,  compared to a negative $33 million in the prior year.  The $49 million
overall  improvement is a result of higher earnings and a decrease in the use of
working  capital,  reflecting  strong  management  on both sides of the  balance
sheet,  as well as a $10 million  temporary  benefit  from the timing of certain
payments.  Consistent  with  earnings,  nearly all the business  units  reported
improvements  in cash flows from operating  activities.  Days sales  outstanding
declined in several key  businesses and on an overall  basis.  Inventory  levels
declined  slightly from a year ago. For the full year 2004, the Company  expects
cash from  operating  activities  to increase  consistent  with  earnings and to
continue to substantially exceed net income.

The Company  receives a  significant  annual cash benefit from  deferred  income
taxes. Much of this benefit is due to a large base of tax deductible  intangible
assets which exist for income tax reporting  purposes but not for book purposes,
a  significant  portion of which arose in  connection  with the  Company's  1997
conversion from a limited partnership to a corporation.  In the ordinary course,
the Company is subject to review by domestic  and  foreign  taxing  authorities,
including  the Internal  Revenue  Service  ("IRS").  From 1986 through 1997 most
operations of the Company were  conducted in partnership  form,  free of federal
corporate  income tax.  During that period,  the Company was not reviewed by the
IRS. In 1997 the Company  converted from partnership to corporate form. In 2003,
the IRS  commenced  an  examination  of the  Company's  consolidated  income tax
returns for 2002, 2001 and 2000. The Company expects the IRS'  examination to be
in its final stages in late 2004 and completed in early 2005. As with any review
of this nature, the outcome of the IRS examination is not known at this time.


                                       15
<PAGE>


CASH FLOWS FROM INVESTING ACTIVITIES
Capital  expenditures,  which include  recurring  capital needs and  information
technology  projects,  were above prior year  levels.  The  Company  anticipates
approximately  $50 million of capital  expenditures in 2004  reflecting  systems
enhancements  and  other  initiatives.  The  Company  has  no  material  capital
commitments at this time.

Tuck-in  acquisitions in the first quarter of 2004 totaled $8 million,  compared
with $17 million in 2003.  Consideration  consisted of cash  payments and seller
financed  notes.  The decrease in acquisitions is a timing matter as the Company
believes that the level of tuck-in  acquisitions  for the year could double from
last year's level due to increased activity at Terminix.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid to  shareholders  totaled $31 million or $.105 per share for
the three months ended March 31, 2004. In April 2004,  the Company paid a second
quarter  cash  dividend  of $.105 per share and  declared a third  quarter  cash
dividend of $.11 per share payable on July 30, 2004 to shareholders of record on
July 9, 2004.  The  announced  dividend  reflects a 4.8 percent  increase in the
quarterly  dividend  amount  compared  to the $.105 per share paid in the second
quarter.  The Company  records its dividend  liability  on the record date.  The
timing and amount of future  dividend  increases  are at the  discretion  of the
Board of Directors and will depend on, among other things, the Company's capital
structure objectives and cash requirements.

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  For the three months ended March 31, 2004, the Company repurchased
approximately  $40 million of its shares at an average  price of $11.22.  Future
share  repurchases  for the year will depend on  operating  trends and  business
acquisition opportunities but currently the Company expects the full year amount
to be  consistent  with last year.  There  remains  approximately  $104  million
available for repurchases under the July 2000 authorization.  Decisions relating
to any future  share  repurchases  will  depend on various  factors  such as the
Company's  commitment  to maintain  investment  grade  credit  ratings and other
strategic investment opportunities.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $330
million at March 31,  2004,  with  approximately  $250  million  of that  amount
required to support  regulatory  requirements  at  American  Home Shield and for
other  purposes.  Total debt was $823 million at March 31, 2004 compared to $819
million at December 31, 2003.  Approximately  65 percent of the  Company's  debt
matures beyond five years and 35 percent  beyond  fifteen  years.  The Company's
next public debt maturity is in 2005, and involves $138 million.

Management  believes that funds  generated from  operating  activities and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital needs of the Company.  The Company has had a committed  revolving credit
facility for $490 million, which expires in December 2004. As of March 31, 2004,
the Company had issued  approximately  $161  million of letters of credit  under
this facility and had unused  commitments  of  approximately  $329 million.  The
Company  expects to replace its existing  credit  facility  with a new five-year
revolving  credit  facility for $500  million in May 2004.  This new facility is
expected  to expire in May 2009.  The  Company  also has $550  million of senior
unsecured debt and equity  securities  available for issuance under an effective
shelf  registration  statement.  In  addition,  the Company  has an  arrangement
enabling it to sell,  on a revolving  basis,  certain  receivables  to unrelated
third party purchasers. At March 31, 2004, there were no receivables outstanding
that had been sold to third parties. The agreement is a 364-day facility that is
renewable  at the  option  of the  purchasers.  The  Company  may sell up to $65
million of its  receivables to these  purchasers in the future and therefore has
immediate  access to cash proceeds from these sales.  The amount of the eligible
receivables varies during the year based on seasonality of the business and will
at times limit the amount available to the Company.

There have been no material changes in the Company's financing  agreements since
December  31,  2003.  As  described in the  Company's  latest  Annual  Report to
Shareholders,  the Company is party to a number of debt  agreements that require
it to maintain certain financial and other covenants,  including  limitations on
indebtedness   and  interest   coverage  ratio.   In  addition,   under  certain
circumstances,  the agreements may limit the Company's  ability to pay dividends
and repurchase shares of common stock.  These limitations are not expected to be
a factor in the Company's future dividend and share repurchase plans. Failure by
the Company to maintain these covenants could result in the  acceleration of the
maturity of the debt. At March


                                       16
<PAGE>



31, 2004, the Company was in compliance with the covenants related to these debt
agreements and based on its operating outlook for the remainder of 2004, expects
to be able to maintain compliance in the future.

The Company maintains operating lease facilities with banks totaling $95 million
which provide for the  acquisition  and  development of branch  properties to be
leased by the Company.  There are residual value  guarantees of these properties
for up to 82 percent of their fair market  value.  At March 31, 2004,  there was
approximately  $73 million  funded  under these  facilities.  Approximately  $20
million of these leases have been  included on the balance  sheet as assets with
related  debt as of March 31, 2004 and  December  31,  2003.  Of the $95 million
available,  $80  million  expires in  October  2004 and $15  million  expires in
January  2008.  The Company  intends to refinance  the existing  facility  which
expires in October  2004.  If the Company does not refinance the facility it may
be required to purchase the leased assets which total approximately $53 million.

The  majority  of the  Company's  fleet and some  equipment  are leased  through
operating leases.  The lease terms are non-cancelable for the first twelve month
term, and then are month-to-month, cancelable at the Company's option. There are
residual value  guarantees  (ranging from 70 percent to 87 percent  depending on
the  agreement) on these  vehicles and equipment,  which  historically  have not
resulted in significant  net payments to the lessors.  At March 31, 2004,  there
was approximately $242 million of residual value relating to the Company's fleet
and equipment leases.

The  Company's  2003  Annual  Report   included   disclosure  of  the  Company's
contractual obligations and commitments as of December 31, 2003. There have been
no material  changes to these  obligations  and  commitments  since December 31,
2003.

FINANCIAL POSITION - CONTINUING OPERATIONS
Receivables and inventories  increased from year-end levels,  reflecting general
business  growth and increased  seasonal  activity.  Prepaid  expenses and other
assets increased from year end primarily reflecting preseason  advertising costs
and annual repairs and  maintenance  procedures  that are performed in the first
quarter at  TruGreen  ChemLawn  and  advertising  at  Terminix.  These costs are
deferred and recognized  over the production  season and are not deferred beyond
the calendar year end. Deferred customer  acquisition costs increased reflecting
the  seasonality  in the lawn care  operations.  In the winter and early spring,
this  business  sells a series  of lawn  applications  to  customers  which  are
rendered  primarily in March through  October.  The lawn care  operations  incur
incremental  selling  expenses at the beginning of the year that directly relate
to successful  sales in which the revenue will be recognized in later  quarters.
These costs are deferred and recognized  over the production  season and are not
deferred beyond the calendar year-end. Property and equipment increased slightly
from year-end  levels,  reflecting  general  business  growth.  Deferred revenue
increased from year-end levels, reflecting strong growth in customer prepayments
at TruGreen ChemLawn. The Company does not have any material capital commitments
at this time.

The Company has minority investors in Terminix. This minority ownership reflects
an interest  issued to Allied Bruce  Terminix  Companies in connection  with the
acquisition of its business in 2001.  This equity  security is convertible  into
eight  million   ServiceMaster  common  shares.  The  ServiceMaster  shares  are
considered in the shares used for the calculation of diluted earnings per share.

Total  shareholders'  equity was $762 million at March 31, 2004 and $817 million
at December 31, 2003. The decrease  reflects  earnings in the business offset by
cash dividend payments and share repurchases.

Dividends  paid in 2003 on the  Company's  common  stock  were  not  taxable  to
shareholders  as dividend  income for federal  income tax purposes,  but instead
were  treated as a  non-taxable  return of  capital.  Under  federal  tax rules,
dividends are  considered  taxable only when paid out of current or  accumulated
earnings  and  profits as defined  under  federal  tax laws.  As a result of its
December  1997  reincorporation,  the Company  only began  generating  corporate
earnings and profits for tax purposes in 1998. Since 1998,  earnings and profits
for tax  purposes  have been  reduced  by  dividend  payments,  amortization  of
intangible  assets for tax reporting,  deductions  relating to business closures
and the timing of certain other tax-related items. The Company currently expects
that  approximately  70 percent of its 2004  dividends  on common  stock will be
taxable  as  dividend  income  for  federal  income tax  purposes.  The  Company
currently  expects that the taxable  portion of its dividend income will grow to
be fully taxable by the year 2007.



                                       17
<PAGE>



FINANCIAL POSITION - DISCONTINUED  OPERATIONS The assets and liabilities related
to  discontinued  businesses  have been  classified in separate  captions on the
Consolidated  Statements  of Financial  Position.  Assets from the  discontinued
operations have declined slightly from year-end levels representing  collections
on  receivables.  The  remaining  liabilities  primarily  represent  obligations
related to long-term self-insurance claims.




FORWARD-LOOKING STATEMENTS
THE COMPANY'S  ANNUAL REPORT CONTAINS OR  INCORPORATES  BY REFERENCE  STATEMENTS
CONCERNING   FUTURE  RESULTS  AND  OTHER  MATTERS  THAT  MAY  BE  DEEMED  TO  BE
"FORWARD-LOOKING  STATEMENTS"  WITHIN  THE  MEANING  OF THE  PRIVATE  SECURITIES
LITIGATION  REFORM ACT OF 1995. THE COMPANY  INTENDS THAT THESE  FORWARD-LOOKING
STATEMENTS,  WHICH  LOOK  FORWARD  IN TIME AND  INCLUDE  EVERYTHING  OTHER  THAN
HISTORICAL  INFORMATION,  BE  SUBJECT  TO  THE  SAFE  HARBORS  CREATED  BY  SUCH
LEGISLATION.  THE COMPANY NOTES THAT THESE  FORWARD-LOOKING  STATEMENTS  INVOLVE
RISKS AND UNCERTAINTIES  THAT COULD AFFECT ITS RESULTS OF OPERATIONS,  FINANCIAL
CONDITION  OR CASH  FLOWS.  FACTORS  THAT COULD CAUSE  ACTUAL  RESULTS TO DIFFER
MATERIALLY  FROM  THOSE  EXPRESSED  OR IMPLIED  IN A  FORWARD-LOOKING  STATEMENT
INCLUDE THE FOLLOWING (AMONG OTHERS):  WEATHER CONDITIONS THAT AFFECT THE DEMAND
FOR THE COMPANY'S  SERVICES;  COMPETITION  IN THE MARKETS SERVED BY THE COMPANY;
LABOR  SHORTAGES OR INCREASES IN WAGE RATES;  UNEXPECTED  INCREASES IN OPERATING
COSTS, SUCH AS HIGHER INSURANCE AND SELF INSURANCE AND HEALTH CARE COSTS; HIGHER
FUEL PRICES; INCREASED GOVERNMENTAL REGULATION INCLUDING TELEMARKETING;  GENERAL
ECONOMIC  CONDITIONS  IN THE UNITED  STATES,  ESPECIALLY AS THEY MAY AFFECT HOME
SALES OR CONSUMER SPENDING LEVELS; TIME AND EXPENSES ASSOCIATED WITH INTEGRATING
AND WINDING DOWN  BUSINESSES;  AND OTHER FACTORS  DESCRIBED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.






                                       18
<PAGE>



                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The economy and its impact on discretionary consumer spending, labor wages, fuel
prices,  insurance  costs and medical  inflation  rates could be  significant to
future operating earnings.

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements,  primarily fuel hedges, in the normal course of business to manage
certain market risks, with a policy of matching positions and limiting the terms
of contracts to relatively short durations.  The effect of derivative  financial
instrument transactions is not material to the Company's financial statements.

In December 2003 and January 2004,  the Company  entered into interest rate swap
agreements  with a total  notional  amount of $165  million.  Under the terms of
these  agreements,  the Company  pays a floating  rate of  interest  (based on a
specified  spread over six-month  LIBOR) on the notional  amount and the Company
receives a fixed rate of interest at 7.88% on the notional amount. The impact of
these swap transactions was to convert $165 million of the Company's debt from a
fixed rate of 7.88% to a variable rate based on LIBOR.

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest swap  agreements,  approximately  77 percent of total
debt at March 31, 2004 was at a fixed rate.  The  payments on the  approximately
$73 million of funding  outstanding  under the Company's  real estate  operating
lease   facilities  as  well  as  its  fleet  and  equipment   operating  leases
(approximately  $242  million in residual  value) are tied to floating  interest
rates.  The Company's  exposure to interest  expense based on floating  rates is
partially  offset  by  floating  rate  investment  income  earned  on  cash  and
marketable  securities.  The Company  believes its overall  exposure to interest
rate fluctuations is not material to its overall results of operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically adjusts based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit  ratings,  based on amounts  outstanding  at March 31, 2004, a one
rating category  improvement in the Company's credit ratings would reduce annual
expense by approximately  $0.8 million.  A one rating category  reduction in the
Company's  credit  ratings  would  increase  expense on an  annualized  basis by
approximately $1.4 million.

The following table summarizes  information  about the Company's fixed rate debt
as of December 31,  2003,  including  the  principal  cash  payments and related
weighted-average  interest rates by expected  maturity dates.  The fair-value of
the  Company's  fixed rate debt was  approximately  $862 million at December 31,
2003.

                               Expected Maturity Date
                       ---------------------------------------
                                                               There-
   (In millions)       2004    2005    2006    2007    2008    after     Total
  ------------------------------------------------------------------------------
  Fixed rate           $28     $151    $12     $60      $8     $540      $799
  debt
  Avg. rate            4.8%    8.3%    6.0%    6.7%    6.1%    7.7%      7.6%
  ==============================================================================

As  previously  discussed,  the  Company  has entered  into  interest  rate swap
agreements,  the impact of which was to convert  $165  million of the  Company's
2009 maturity debt from a fixed rate of 7.88% to a variable rate based on LIBOR.







                                       19
<PAGE>






                             CONTROLS AND PROCEDURES

The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  President  and  Chief  Financial  Officer,  Ernest  J.  Mrozek,  have
evaluated the Company's  disclosure controls and procedures as of the end of the
period covered by this report.

The Company's  disclosure controls and procedures include a roll-up of financial
and  non-financial  reporting that is  consolidated  in the principal  executive
office of the  Company in Downers  Grove,  Illinois.  The  reporting  process is
designed to ensure that  information  required to be disclosed by the Company in
the  reports  that it files  with or  submits  to the  Securities  and  Exchange
Commission  is recorded,  processed,  summarized  and  reported  within the time
periods specified in the Securities and Exchange  Commission's  rules and forms.
Messrs. Ward and Mrozek have concluded that both the design and operation of the
Company's disclosure controls and procedures are effective.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  most  recent  fiscal  quarter  that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.



                                       20
<PAGE>








 PART II. OTHER INFORMATION

ITEM 2:  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
         EQUITY SECURITIES

SHARE REPURCHASES:

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  The following  table  summarizes the Company's  common stock share
repurchases for the three months ended March 31, 2004 under its share repurchase
authorization. Decisions relating to any future share repurchases will depend on
various factors such as the Company's  commitment to maintain  investment  grade
credit ratings and other strategic investment opportunities.

<TABLE>



                                                                                    Total               Approximate
                                                                                   Number              Dollar Value
                                                                                  of Shares           of Shares that
                                                                                Purchased as            May Yet be
                                        Total Number       Average Price      Part of Publicly           Purchased
                                          of Shares          Paid per             Announced              Under the
                                        Purchased (a)          Share                Plan                   Plan
-------------------------------------------------------------------------------------------------------------------------

<S>                                           <C>                  <C>                 <C>                <C>
January 1, 2004 through
  January 31, 2004                                    -                $ -                      -          $ 143,000,000

February 1, 2004 through
  February 29, 2004                             960,000            $ 10.92                960,000          $ 133,000,000

March 1, 2004 through
  March 31, 2004                              2,606,700            $ 11.33              2,606,700          $ 104,000,000

                                      ------------------------------------------------------------
Total                                         3,566,700            $ 11.22              3,566,700
                                      ============================================================

</TABLE>


a)   Does not include 14,000 shares  acquired from employees in connection  with
     the settlement of income tax and related  withholding  obligations  arising
     from the exercise of stock options or vesting of restricted stock grants.


ITEM 6(A): EXHIBITS

EXHIBIT NO.       DESCRIPTION OF EXHIBIT

31.1 Certification  of Chief Executive  Officer  Pursuant to Rule 13a - 14(a) or
     15d - 14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act
     of 2002

31.2 Certification  of Chief Financial  Officer  Pursuant to Rule 13a - 14(a) or
     15d - 14(a), as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act
     of 2002

32.1 Certification  of Chief  Executive  Officer  Pursuant  to  Section  1350 of
     Chapter 63 of Title 18 of the United  States Code,  as adopted  pursuant to
     Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification  of Chief  Financial  Officer  Pursuant  to  Section  1350 of
     Chapter 63 of Title 18 of the United  States Code,  as adopted  pursuant to
     Section 906 of the Sarbanes-Oxley Act of 2002



                                       21
<PAGE>




ITEM 6(B):    REPORTS ON FORM 8-K

A report on Form 8-K was  furnished  on February  18,  2004.  The purpose of the
report was to provide under Item 9, the press  release  issued by the Company on
February  18,  2004  discussing  information  concerning  the tax  treatment  of
dividend  payments made by the Company during 2004, as well as dividend payments
made by the Company  during 2000. The Company is continuing to review the proper
tax treatment of dividends paid to  shareholders in 2001 and 2002 and expects to
provide additional information for those years by December, 2004.

A report on Form 8-K was  furnished  on February  12,  2004.  The purpose of the
report was to provide under Item 12, the press release  issued by the Company on
February 12, 2004  announcing  the financial  results for the fourth  quarter of
2003.

A report on Form 8-K was  furnished  on January  14,  2004.  The  purpose of the
report was to provide under Item 9, the press  release  issued by the Company on
January 14, 2004  announcing  that dividend  payments made by the Company during
2003 will not be taxable as dividend income for federal income tax purposes, but
instead will be treated as a non-taxable return of capital.

A report on Form 8-K was  furnished  on January  12,  2004.  The  purpose of the
report was to provide under Item 9, the press  release  issued by the Company on
January 12, 2004  announcing  that Ernest J. Mrozek,  who  previously  served as
President  and Chief  Operating  Officer of the Company was named  President and
Chief Financial Officer.






                                       22
<PAGE>







                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  May 10, 2004


             THE SERVICEMASTER COMPANY
             (Registrant)

             By:                    /S/ ERNEST J. MROZEK
                ------------------------------------------------------

             Ernest J. Mrozek
             President and Chief Financial Officer





                                       23
<PAGE>